News

Whilst the increasing numbers of company liquidations are concerning enough, perhaps of greater concern is the increase in the number of companies facing “financial stress”. Figures from Begbies Traynor show a seven fold increase in companies facing financial stress (County Court Judgement of £5,000 or more, winding up petition, administration and receivership) in Q2 2008 compared to Q2 2007 and an increase of 30% against Q1 2008.
There have also been much publicised cases of extended credit periods being demanded by customers – According to the FSB, Boots are demanding supplier credit terms of 75 days from end of month of invoice and are deducting a 2.5% settlement discount. Contract Journal reported that Bovis Homes are requiring suppliers to accept 90 day payment terms or accept a settlement discount of between 5% and 10%.

The stable market conditions of recent years – regular growth, low interest rates, low inflation – have led to an erosion of profit margin and these low margins are now put under pressure by increasing input costs of fuel and raw material. If customers are delaying payments and banks are not providing additional finance then Begbies Traynor’s figures come as no surprise.
Good credit management procedures are critical in this market as even a small bad debt can be damaging where cash flow is already fully stretched. Customers should be constantly monitored to see if County Court Judgements are registered or any other court proceedings commenced. Filed accounts should be reviewed – though trading conditions in the period that the latest filed accounts cover were very different to the current period, so more recent, management figures should also be requested. It is also useful to be aware of how your customers are paying their other suppliers.

If all of that sounds too much for a company to do in-house, then credit insurance could be the solution as credit insurers will be keeping up with all of that information. That is why companies with credit insurance incur fewer bad debts than those without.